Japan has drastically increased its holdings of US bonds, bill, and notes, officially overtaking China. According to data released by the country's Treasury Department, Japan had increased its holdings of US treasuries by about $21.9 billion, sending its total to $1.12 trillion.
The increase in Japan's holdings has sent its figures to its highest level in more than two and a half years, even higher than what China currently has. Following the escalation of its trade dispute with the United States, China had increased its holdings by only $2.3 billion, sending its total to $1.11 trillion.
Based on the recently released data, Japan now holds the position as the biggest creditor to the United States. The last time that Japan had held the position as the US' largest foreign creditor was in May 2017. Since that time, Japan has reportedly been adding around $100 billion worth of treasuries at a steady pace.
The move is seen as Japan's way of shifting to treasuries and away from negative yielding debts. The US' benchmark 10-year bonds are currently down to its lowest level since 2016, but it is still better than Japan's own 10-year government bonds that have current yields of negative 0.23 percent.
According to analysts, the increase in the buying of treasuries is a clear sign of a globally low and negative yield environment. The increase in holdings has also been greatly exacerbated by the breakdown in negotiations between China and the United States in May. This was then followed by a months-long calm in the trade dispute, which was broken in late June following Trump's threats to impose additional tariffs on Chinese imports.
That threat was then temporarily put on hold after Trump announced this week that he would be delaying the country's planned 10 percent tariffs on certain Chinese goods until December 15. China had retaliated to the US' decisions by halting its purchase of US agricultural products. China also seemingly allowed its currency to drop below the 1-to-7 ratio, sending global markets further down.
Following the tit-for-tat actions, there are now legitimate fears that China could very well start to sell its US Treasuries in retaliation.
According to a report from Goldman Sachs, China had remained the top seller of US treasuries, while Japan is the largest net buyer in the Asian region. As the trade dispute continues, China may continue with its plan to diversify out of US dollars. This trend has been seen to coincide with rising demand for government debt from other areas, further pushing down yields.
